Rethink on land tax is only a start

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The Government has finally seen sense. It could still do
more about other counterproductive taxes.

The State Government has telegraphed its intention to ease the
land tax burden in its budget on May 3. Ease is the operative word
here - abolishing land tax does not appear to be on the agenda.
According to information obtained by The Age, the
Government plans to offer some relief to those who fall into what
is described as the "middle" tax brackets. It is believed the
decision will affect properties worth between $850,000 and $2.7
million. Between 10,000 and 20,000 individual and small business
property holders fall within this range.

Such a move will cost several million dollars in state revenue.
It must be balanced, however, against the damage that the land tax
regime as it stands is inflicting on the small business and
investment environment in Victoria. The Government has at last
listened to the lobbying of small business in particular, which has
clearly signalled that land tax has in many cases become the
difference between having a viable business and having no business
at all. For several established traders, the decision comes too
late. D. & J. Evans in Camberwell, Melbourne's oldest hardware
business, and the Whitehorse Inn in Hawthorn have closed, citing
land tax bills as the main reason.

The Government has spent months defending the land tax system,
while reaping the windfall benefits of absurd increases as a result
of revalued land. While The Age believes that in principle a
properly administered land tax can be an equitable and progressive
tax on wealth, its imposition in Victoria long ago ceased to be
fair. Put simply, the relationship between the value of land, the
capacity of landholders to pay, their earnings and the taxes being
levied has been hugely skewed by the property boom. Surely taxing
any such increase in land value is the point of a capital gains tax
upon sale.

The Government's review is a start, but tinkering around the
edges will not solve the inequities of land tax's application in
the longer term. Given the revenue flowing from the GST, which is
driving debate about states' obligations under their 1999 agreement
with the Commonwealth, a broader review of damaging state taxes,
notably payroll tax, may well be warranted.